SEC Disgorgement: What It Means for You.

The Securities and Exchange Commission (SEC) has broad authority to pursue various types of remedies against fraud defendants. These include:

• Disgorgement,
• Civil monetary penalties, and,
• Permanent injunctions against future violations of the securities laws.

A key point in the SEC enforcement landscape, and a point of extensive litigation and controversy in recent years, is that, when available, disgorgement measures a defendant’s “wrongful net gains” rather than a defendant’s role in causing “investors’ financial losses.”

Sripetch v. SEC, 608 U.S. ___ (2026) (No. 25-466) confirmed the SEC’s ability to seek disgorgement when there has not been any pecuniary investor loss, specifically eliminating “the necessity of any showing of investors’ financial losses as a prerequisite for disgorgement.” Justice Neil Gorsuch wrote the Court’s opinion, which the Court decided unanimously on June 4, 2026. Sripetch also adopted the approach set forth in Liu, acknowledging that the SEC’s authority to seek disgorgement must comply “with traditional equitable restrictions,” and affirmed that disgorgement should be limited to “net wrongful gains.”

Prior to Sripetch, the First, Second, and Ninth Circuits were divided with respect to the SEC’s authority to seek disgorgement when there have been no pecuniary investor losses. Sripetch resolved this divide, settling on the broader approach in a case involving at least 20 penny-stock companies that had been involved in apparent “pump-and-dump” schemes.

Importantly, the Supreme Court’s holding in Sripetch is not without its practical consequences. This includes potential financial exposure to disgorgement from the date of the alleged securities violations to the date of judgment. In SEC enforcement cases involving cryptocurrency-related fraud, this includes cases involving initial coin offerings (ICOs) of various tokens and cases involving alleged Ponzi schemes. The calculation of “net wrongful gains” can prove a significant point of contention as well.

Can the SEC Seek Disgorgement When No Investors Lost Money?

Yes. Sripetch v. SEC, 608 U.S. ___ (2026) (No. 25-466), the U.S. Supreme Court explicitly displaced the “investor harm” requirement from Govil, noting that “the concept of investor harm is not limited to pecuniary harm.” In the Court’s view, an equitable remedy, such as disgorgement, is warranted when a defendant’s fraud “interferes with investors’ legally protected interests” by misrepresenting information, but such an interference does not necessarily include actual or measurable losses:

“For example, in traditional common law cases involving defendants’ misappropriation of real property, courts found it proper to require the return of profits acquired through unauthorized use of the property even though the legal owner may have suffered no measurable loss.”

The Court noted that this is a principle that can have a similar application in the context of securities fraud, and that there is substantial support for the proposition that, when available, disgorgement should be limited to the recovery of illegal gains regardless of investors’ pecuniary losses.

Along with providing some clarity on the SEC’s ability to seek disgorgement in the absence of pecuniary loss, the Sripetch decision also affirmed the SEC’s authority to seek disgorgement “subject to the same equitable restrictions that govern any other equitable remedy imposed by a court.” This reinforces the SEC’s obligation to comply with a series of principles set forth in Liu:

• Disgorgement cannot be imposed as a punitive sanction;
• Disgorgement must primarily benefit the “victims” of the alleged fraud;
• Disgorgement funds should ordinarily be returned to victims, though Liu left open whether they may be paid to the U.S. Treasury when distribution to investors is infeasible; and,
• Disgorgement must be limited to “net wrongful gains.”

These are all limitations which were articulated by the Court in Liu. However, courts have continued to disagree about whether “statutory disgorgement” incorporates all of the same limitations as “equitable disgorgement.” As a result, while an SEC enforcement action may target the recovery of “wrongful net gains” regardless of investors’ pecuniary loss, there will still be multiple issues to resolve regarding a defendant’s financial exposure, including a defendant’s potential exposure to civil monetary penalties as well.

How Do Deficient Conflict Disclosures Affect SEC Disgorgement?

Deficient conflict disclosures can have a significant role in determining potential financial exposure to SEC disgorgement in certain cases, as well. For example, under an SEC disgorgement award for inadequate disclosure of a conflict of interest, a defendant’s financial exposure may include a defendant’s advisory fees, even though the underlying investment performed well. This is because inadequate conflict disclosure can, in itself, interfere with an investor’s right to “receive truthful information from the investment advisor in order to make an informed and rational decision.”

How Will a Court Calculate My Net Wrongful Gains?

What Expenses Can Be Deducted?

As Liu made clear, a disgorgement award should be limited to a defendant’s net wrongful gains:

“In other words, while the SEC can seek a defendant’s profits as well as what that defendant got back in the initial investment, it cannot seek any profits that belong to others. As Liu expressly recognizes, “the SEC cannot seek to recover from an individual a profit from a fraud scheme that the individual did not receive.”

What About Expenses the Defendant Paid Out?

As Liu also made clear, this means that defendants can use “all deductible expenses” in order to calculate a defendant’s net profits. For example, if a defendant earns $10,000 from an ICO and spent $3,000 on computer equipment, marketing costs, and other expenses incurred in the course of that ICO, that defendant’s net wrongful gains would be $7,000 (assuming that those computer equipment, marketing, and other expenses did not help further the fraudulent scheme). However, any expenses the defendant incurred in the course of selling securities would not be deductible to the extent that those expenses were used “to further the fraud,” and any expenses that conferred a benefit independent of the fraud would be deductible.

In light of Liu, the SEC must seek the “net profits” disgorgeable under the securities fraud statute, and a defendant’s net wrongful gains should reflect the amount the SEC is entitled to recover in the specific case at hand. This also means that in order to calculate a defendant’s net wrongful gains, an SEC enforcement action must apply traditional causation principles, as the SEC can only seek a recovery of those gains “causally connected” to the defendant’s securities law violation(s). This means the SEC must also reasonably approximate that amount, and once the SEC establishes an approximation, it will then be up to the defendant to show that the SEC’s approximation is unreasonable.

What if More Than One Person Is Involved?

As a general rule, disgorgement awards are not calculated on a joint-and-several basis, as Liu made clear that “the SEC cannot seek to recover from an individual a profit from a fraud scheme that the individual did not receive.” However, a court may find multiple defendants jointly and severally liable for disgorgement if the defendants are considered “partners” who both engaged in “coordinated wrongdoing” in which they both “benefited from the proceeds of the fraud scheme.” If the defendants are considered “partners” for purposes of disgorgement, then, as Liu explains, the “amount to be disgorged is the amount of the illicit benefit gained from the overall fraudulent scheme in which the partners participated.”

If you are facing this situation, Spodek Law Group handles federal criminal defense matters nationwide, from offices in New York and Los Angeles.

How Far Back Can the SEC Seek Disgorgement?

When Did Congress Enact SEC Disgorgement Authority?

Congress enacted a clear and explicit statutory authority for disgorgement in the early part of 2021, and Congress assigned to the new statutory disgorgement remedy a separate limitations period that “is different from the one that applies to other equitable remedies available to the SEC.”

What Are the Limitations Periods for SEC Disgorgement?

Under 15 U.S.C. §78u(d)(8)(A)(i), disgorgement has a general limitations period of five years:

“Statutory disgorgement has a five-year limitations period of which disgorgement is not computed to the date of the conduct alleged in the complaint, but which instead begins to run from the date the SEC believes the securities violation was completed in order to allow disgorgement of gains after the violation occurred.”

There is a separate ten-year limitations period for cases that are based on violations involving scienter:

“Statutory disgorgement has a ten-year limitations period for scienter-based securities law violations, which similarly begins to run from the date of the latest violation involved in that particular transaction or series of transactions.”

Essentially, an enforcement action’s disgorgement claim would be timely if a defendant’s alleged securities law violation was completed within five years of the present date (for cases in which no scienter is alleged) or ten years of the present date (for scienter-based cases).

Does Section 78u(d)(7) of the 1933 Securities Act Also Permit Disgorgement?

The Securities Exchange Act of 1934 also contains a provision, 15 U.S.C. §78u(d)(7), which provides:

“In any action or proceeding brought by the Commission under any provision of the securities laws, the Commission may seek, and any Federal court may order, disgorgement.”

While this section allows a court to enter an order requiring a defendant to pay any profits earned from the sale of securities, this section does not characterize disgorgement as equitable relief. If this section provides a basis for disgorgement, it remains to be seen whether that statute’s provision would impose any of the limitations on statutory disgorgement and whether any of the equitable limitations found in Liu apply.

What Happens If I Cannot Pay a Disgorgement Judgment?

Prejudgment Interest

Federal courts have the discretion to add prejudgment interest to SEC disgorgement judgments, and if so, this prejudgment interest is calculated under C.F.R. §201.600 using the federal tax-underpayment rate, which compounds quarterly. While an inability to pay the judgment does not alter the computation of wrongful net gains, the SEC still has to provide the court with a compelling reason to award prejudgment interest in any case, even in cases involving the SEC’s authority to seek disgorgement under the 2021 amendments.

Inability to Pay

An inability to pay a disgorgement judgment does not impact a defendant’s computation of wrongful net gains, and defendants can find themselves unable to pay a disgorgement judgment in various circumstances.

Installment Payments

In consent judgments, defendants can negotiate installment payments in certain cases, and, in some cases, the SEC will require them to pay the balance of their judgment in a lump sum. When installment payments are an option, the SEC must generally agree to the duration and size of payments based on the defendant’s documented financial circumstances.

Rule 69 and Asset Collection

Under Federal Rule 69, the SEC can use postjudgment discovery to pursue a defendant’s assets in order to collect on a judgment. While the SEC must generally identify the specific assets that the defendant has that it will use to seek collection, it can use Federal Rule 69 postjudgment discovery procedures to obtain information that it may use to identify assets of a defendant.

Missed Installments

In most negotiated consent judgments, the SEC also includes acceleration provisions, and if the defendant misses any installments, then the balance of the defendant’s judgment will become immediately due.

Asset Freezes

If a defendant is found to have obtained profits through a securities fraud scheme, federal courts can order an asset freeze in order to allow the SEC to collect the disgorgement amount owed, and while courts only exempt reasonable living or legal expenses, these freezes can still have serious financial consequences for defendants.

Payment for Penalties

As a practical matter, disgorgement is almost always accompanied by an order to pay other forms of compensation, and it’s likely that defendants who are unable to pay a disgorgement judgment will similarly be unable to pay their compensation amounts to the SEC as well. This includes compensation amounts that are:

• Disgorgement
• Civil money penalties
• Interest
• Other forms of judgment amounts

What Financial Consequences Follow an SEC Disgorgement Order?

What Happens if Victims Recover Their Losses in Other Proceedings?

As a general rule, if victims receive compensation in other proceedings such as restitution or disgorgement in related SEC enforcement actions, they can still seek to receive payment from the defendant’s disgorgement obligation if such payment is not duplicative. In other words, restitution payments that cover the same losses should reduce a defendant’s outstanding disgorgement balance, and if the restitution amount exceeds the defendant’s disgorgement balance, then additional restitution payments should not further reduce the disgorgement amount. If the restitution payment is less than the disgorgement balance, then the restitution payment should be fully credited against a defendant’s disgorgement obligation. However, this generally is not the case, because as clarified in Liu, a disgorgement award is designed to strip the profits from a defendant’s securities violations rather than compensate an investor for a loss.

What About Criminal Forfeiture?

While some courts have reasoned that a criminal forfeiture order should satisfy a defendant’s disgorgement obligation, others have found that it does not. These opinions, however, may simply be wrong, and it remains up to the SEC and the defendant(s) to determine what form a disgorgement judgment takes in each case.

If an SEC disgorgement award and criminal forfeiture order both apply in a case, the two orders may both be enforceable against the defendant. This is particularly true when the forfeiture judgment is based on different allegations than the disgorgement award. As a result, even in cases involving similar violations, the defendant’s financial exposure may include both a criminal forfeiture judgment and an SEC disgorgement judgment.

Can Defendants Get a Credit for Private Settlement Payments?

Generally, no, and this is a substantial practical consequence of the SEC’s ability to seek disgorgement regardless of whether any investors have suffered any losses. As seen in Liu, the Supreme Court’s goal in allowing the SEC to seek disgorgement was to avoid rewarding defendants for engaging in fraudulent schemes. If defendants could get credit for private settlement payments, then the government could have difficulty enforcing civil disgorgement judgments and civil penalties in cases in which the government could seek to collect an amount exceeding the amount of any private settlement payment.

Are SEC Disgorgement Payments Tax-Deductible?

As noted above, in many cases, disgorgement is considered to be a form of payment to the government, and as such, disgorgement payments cannot be deducted as a business expense under IRC §162(f). However, a “qualifying disgorgement payment,” “qualifying restitution,” or “any other payment that is similarly disposed,” may be deductible provided that the defendant also meets two additional requirements: (i) the amount paid was “fully paid by a qualified governmental entity, a qualified foreign governmental entity, or any other entity that is properly structured to meet the definitions of a qualified governmental entity or qualified foreign governmental entity, and (ii) the qualifying disgorgement payment, qualifying restitution, or any other similar payment are made to:

• A qualified governmental entity,
• A qualified foreign governmental entity,
• Another entity similarly disposed to a qualified governmental entity or qualified foreign governmental entity,
• The defendant himself (provided that the amount is a “qualifying disgorgement payment” or “qualifying restitution” for purposes of making the payment a qualified deductible expense), and,
• The defendant’s business,
• The defendant’s creditors,
• The defendant’s insurance company, or,
• Another party that qualifies as a qualified governmental entity, a qualified foreign governmental entity, or similar entity.

However, disgorgement as well as civil monetary penalties are generally nondischargeable under 11 U.S.C. §523(a)(19). This means that, while SEC judgments may be paid through a defendant’s insurance company or through an indemnity agreement, a defendant will still generally be on the hook to pay any amount that is not otherwise covered. While an insurance company or indemnity agreement may provide the defendant a way to settle a disgorgement judgment, they do not themselves reduce the amount a defendant owes under an SEC judgment.

Speak With a Federal Defense Lawyer

If you are dealing with any part of what this article describes, the next step is a conversation with a lawyer who handles these cases. Spodek Law Group is a second generation criminal defense firm practicing since 1976, representing clients nationwide from offices in New York, Brooklyn, Queens and Los Angeles. Call 212-300-5196 to speak with our team.